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Make Finances a Family Affair

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Many families delegate chores and other responsibilities by assigning them to particular family members. You might be responsible for mowing the lawn every week, while your partner takes care of making sure your cars get regular maintenance, your son cleans out the cat's litter box every few days, and your daughter puts the toys away every night. By giving everyone something to do, you not only make sure that important things get done, but also create an environment of teamwork.

Unfortunately, the same parents who do such a good job of incorporating each other and their children into the day-to-day life of the family often fail to extend their efforts to financial matters. Instead of openly including everyone in discussions about family finances, one adult frequently takes primary or even sole responsibility for all aspects of the family's financial plan.

By making each family member aware of elements of the family's finances, you can avoid many problems that can arise when just one person handles everything, and you can contribute to the financial education of your kids at the same time.

The costs of silence
Since time management has become such a huge challenge for families, having one person primarily handle financial matters is understandable. Involving both partners with the finances takes away time that they could spend doing other things, like being with their children. In some cases, one partner seems to have a knack for dealing with money, while the other prefers to take a secondary role.

However, this approach has many negative aspects. First, when only one family member completely understands the family's financial situation, it is much more difficult to reach a cooperative solution because the other family members cannot contribute to an informed discussion. As a result, the person in charge of finances often unilaterally tries to impose a solution on everyone, and doing that can lead to family discord in many cases. This may help explain why couples fight about money matters more than they do about any other subject.

Second, if one family member has complete control over the family's finances, the rest of the family often becomes completely dependent on that person. The resulting imbalance in power can create its own problems. For example, the person handling finances has the ability to hide financial mistakes from the rest of the family. Furthermore, if that family member dies, or if the couple splits up, then the rest of the family may have absolutely no idea how to manage even the simplest of financial matters.

It's easy for a surviving partner to become completely overwhelmed when confronted with paying regular living expenses, managing the family's investments and debts, and trying to understand the financial plan that the deceased partner had implemented. Some people are so grief-stricken that they never successfully address these matters. They soon face bill collectors, and sometimes even foreclosure and bankruptcy. (For help with this, see "5 Things Your Honey Has To Know.")

Simple solutions
If you're handling the family finances, you don't have to tell your family about every little trivial thing that crosses your desk. However, you should keep your partner informed about the general state of your family's financial situation. Knowing basic information like income and expenses, total net worth, and the types of investments you're making is critical to your partner in helping you make financial decisions for the family. In addition, you should create a detailed list of all important financial information, including the location of estate-planning documents, names of financial institutions that hold family investments, and a summary of regular expenses you pay. This list will allow your partner to handle the finances if you become are unable to handle them yourself.

Get the kids involved
Teaching your children about money is an extremely important part of your parental responsibilities. Because most schools lack any significant education about finances, it's up to you to create a strong foundation of knowledge that your children can use to guide their financial decisions.

How you talk to your children about money depends on their age and comprehension level. Younger children probably won't understand a futures contract, but they can usually grasp simpler concepts like saving coins in a piggy bank. Many financial institutions allow children to open special savings accounts that waive minimum-balance requirements and thus let children save whatever they can deposit, no matter how small.

As children grow, they gain experience in handling money and understand the trade-off of spending now and going without later versus saving now and spending later. (Check out our tips on how to quash Junior's "I wants.") At some point, it's appropriate for educational purposes to discuss the investments you are making; if your child demonstrates an interest, you may want to let that child offer some input about investment choices, or even open a small investment account for your child to manage under your supervision.

You may find that by involving your kids in financial matters, your kids may provide valuable information that you, in turn, can use for investments. After all, lots of companies are targeting your children as customers, so your children's opinions about whether they're the next big thing or the next big flop carry a lot of weight.

Handling your family's finances isn't just another chore. It's a responsibility that has a constant influence on every member of your family. Keeping your entire family actively involved in and aware of the family's financial plan not only prevents problems from arising, but also creates an environment of openness that will improve your children's understanding of financial matters. They will learn valuable lessons that will guide them throughout their lives.

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This article, written by Dan Caplinger, originally ran in December 2006. It has been updated by Dayana Yochim. The Fool has a disclosure policy.


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